Dividend Reinvestment Plan (DRIP)

A Dividend Reinvestment Plan (DRIP) allows investors to reinvest the dividends they earn from stocks or mutual funds to purchase additional shares or units, either fractional or whole. This feature helps investors compound their returns by increasing their holdings without needing to make a new investment. Both stocks and mutual funds often offer DRIPs, enabling investors to automatically reinvest their dividends. However, it’s important to note that reinvested dividends are still taxable, meaning investors must report them as income even if they are not received in cash. This strategy can enhance long-term growth through compounding.